Opinion
2010-1965/A.
Decided June 8, 2011.
John Berringer, Esq., Reed Smith, LLP, New York, New York, Attorney for Petitioner.
Eli Feit, Esq., Heller, Horowitz Feit, P.C., New York, New York, Attorney for Respondents.
In this discovery proceeding Petitioner, Donald Edward Osborn, the Ancillary Administrator of the decedent's estate, seeks an inquiry pursuant to SCPA § 2103 respecting decedent's title to and ownership of the decedent's stock interests in Lee Tai Enterprises, U.S.A. Ltd; 238-240 7th Avenue Corporation; and Broadway China Town Realty, Inc. (hereinafter "the Corporations").
A previous petition, filed with this court on June 25, 2010, was denied entertainment by Surrogate Robert L. Nahman in a decision dated July 8, 2010 on the basis that much, but not all, of the relief requested therein was not within the subject matter jurisdiction of the Surrogate's Court. On December 29, 2010, the Petitioner submitted the present petition asserting that the Corporations were formed in 1973 for the purpose of owning and managing real property in New York State, and that the decedent, his wife Lee Chan Wun Yin a/k/a Lee Chan Woon Yin a/k/a Lee Chan Won Yen ("Lee Chan"), who predeceased him, and their seven children were the original shareholders in the Corporations. It is undisputed that the Respondent, the only family member who resides in the United States, has been authorized to run the Corporations for approximately 30 years.
Respondent NANCY LEE LUK moves to dismiss the proceeding pursuant to CPLR § 3211(a)(5) on the grounds that Petitioner's claim for relief is time-barred as a matter of law. Petitioner opposes the motion alleging that the proceeding is not time-barred.
An SCPA § 2103 discovery proceeding customarily involves two stages. The first consists of an examination of the respondent for the purpose of discovering information concerning property withheld from the fiduciary of the decedent's estate; and the second is a trial when an issue of title to property has been raised by a respondent's answer. The inquisitorial stage is used, inter alia, when the fiduciary is uncertain whether the respondent has possession of estate property and wants to examine the respondent to ascertain relevant information. The court can order the respondent to appear for the inquiry if the court finds reasonable grounds exist for the inquiry. The petition need not assert allegations sufficient to sustain a cause of action, but must set forth sufficient facts to justify the inquiry (3rd Warren's Heaton Surrogate's Court Practice § 117.03(2) (7th Ed.)).
If the respondent claims title to any of the property at issue, the respondent must file a verified answer stating such [SCPA § 2104(2)]. If, however, an answer is not filed, and an issue of title to any property is subsequently raised by the respondent, the respondent will be directed to serve and file an answer accordingly, but the examination, if directed by the court, shall continue. When an issue of title is raised, that issue is tried as a litigated issue in the hearing stage [SCPA § 2104(1)].
In the instant proceeding, Petitioner seeks an inquiry concerning the shares of the Corporations and the decedent's interests in same. Prior to either filing an answer raising an issue of title and before an inquiry, Respondent made the instant motion to dismiss on the basis that Petitioner's claim is time barred as a matter of law.
To dismiss a cause of action pursuant to CPLR § 3211(a)(5) on the ground that it is barred by the statute of limitations, the respondent bears the initial burden of establishing prima facie that the time in which to sue has expired ( See e.g., Savarese v Shatz, 273 AD2d 219). To satisfy this burden, the defendant must establish, inter alia, when the petitioner's causes of action accrued ( See, Matter of Schwartz , 44 AD3d 779 ). In addition, when deciding a motion under CPLR § 3211, including one based upon statue of limitations, "'a court must take the allegations in the complaint as true and resolve all inferences in favor of the plaintiff'" ( Cimino v Dembeck , 61 AD3d 802 , 803, quoting Sabadie v Burke , 47 AD3d 913 , 914).
In the present case, the Petitioner has asserted a claim regarding possession of the shares of the corporation which is akin to an action for conversion or replevin ( See, In re Estate of Witbeck, 245 AD2d 848, 849). The accrual date of a conversion cause of action is the date that conversion of the property took place ( See, Matter of Rausman , 50 AD3d 909 ) "and not [the date of] discovery or the exercise of diligence to discover" ( Vigilant Ins. Co. of Am. v. Hous. Auth., 87 NY2d 36, 44-45). Similarly, where replevin is sought against a person who allegedly converted the property, the statute of limitations also begins to run on the date the property was converted ( See, Matter of Peters v Sotheby's, Inc. , 34 AD3d 29 , 36). In general, a conversion occurs when there is "an unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights" ( Employers' Fire Ins. Co. v Cotten 245 NY 102, 105). With respect to intangible property like an ownership interest in a corporation, conversion of the shares in the corporation can occur physically with conversion of the stock certificates or through transference of the shares within an electronic database ( See, Thyroff v Nationwide Mut. Ins. Co. , 8 NY3d 283 ).
In support of the motion, the Respondent relies on allegations contained in pleadings filed in the New York State Supreme Court, New York County to establish the accrual date of the Petitioner's causes of action and the resultant conclusion that this proceeding is time barred.
The first pleading relied upon by the Respondent, is a summons with notice filed in the New York County Clerk's Office on December 31, 2003, which states that the relief sought was "a declaration of the ownership interest held by [Lee Chan] . . . now deceased, and a declaration of the interest owned by all other shareholders".
Decedent Chung Li was not a party to the proceeding at the time that document was filed, but the Respondent and the corporations were named as defendants. Based upon a "Letter of Authorization", dated June 10, 2004, executed by the decedent, the summons with notice was amended to add the "Designated Representatives of Li Chung" as one of the Petitioners with additional causes of action and claims of relief. In an unverified complaint annexed to the summons with notice, dated November 4, 2004, the nineteenth paragraph states that "[u]pon information and belief, [the Respondent] breached her fiduciary duty and duty of loyalty to [the Corporations] by transferring ownership without the consent and/or prior knowledge of the other officers, directors and shareholders. . ." In an order dated April 7, 2005, the action was dismissed without prejudice by Justice Bernard J. Fried without explanation.
On August 30, 2005, the executors of Lee Chan's estate, the decedent, and others commenced (on behalf of themselves and derivatively) another proceeding against the Respondent and the Corporations by the filing of a summons with notice with the New York County Clerk's Office. The relief requested in the summons with notice against the Respondent included a demand for a money judgment, an accounting, appointment of a receiver, imposition of a constructive trust and injunctive relief. An unverified complaint flied in that action on November 29, 2005 included the following allegation: "[u]pon information and belief, [the Respondent] breached her fiduciary duty and duty of loyalty to the Companies by transferring ownership without the consent and/or prior knowledge of the other officers, directors and shareholders . . ." In a decision dated February 7, 2007, all the claims in the complaint were dismissed except for a single claim under BCL § 720 brought by Dennis Lee, the son of the decedent and Lee Chan.
Based on this procedural history the Respondent's counsel argues that the causes of action for conversion and/or replevin accrued in December 2003, when the first Supreme Court action was commenced, since the other shareholders, including the decedent, had "actual knowledge of purported wrongdoing by [the Respondent]" and had actually commenced legal proceedings to establish the rights of ownership of the stock in the Corporations. Counsel also asserts that the accrual date for an action sounding in conversion or replevin can not be later than June 10, 2004, the date the decedent executed the above authorization, because it again demonstrates the decedent's actual knowledge of conversion of the decedent's share of the Corporations.
Superficially, this argument holds much appeal as logic would dictate a sworn allegation of conversion or replevin would provide a basis to regard subsequent identical allegations concerning the same subject matter time barred if made several years thereafter. Respondent counsel's argument, simply stated, is that if the estate and/or decedent alleged Respondent had wrongfully taken shares of the Corporations in, at the latest 2004, this discovery proceeding can not be timely as a matter of law.
However, upon closer examination it is clear Respondent, in essence, is attempting to establish by mere implication a point in time when the shares of stock in the Corporations were converted. Respondent has neither submitted her own affidavit, nor for that matter, an affidavit from anyone else with personal knowledge of the facts, indicating a date when Respondent purportedly obtained the decedent's ownership interest in the Corporations.
More critically, the Respondent has not established what legal principle binds the estate in this proceeding as a matter of law to the statements contained in the pleadings in the Supreme Court actions. The statements in the pleadings are not evidentiary in nature as all the pleadings at issue were unverified ( See generally, CPLR § 3020). More importantly, the allegations that the Respondent transferred ownership of the Corporations were made upon information and belief, which lacks any "probative value" ( Noel v L M Holding Corp. , 35 AD3d 681 , 682; see also, Small v Bank of New York, 222 AD2d 667). At most, the Respondent has submitted proof that the decedent was suspicious, and potentially, believed that the Respondent had transferred the shares of the corporation. Nevertheless, as the court recounted earlier, discovery of the conversion is not probative in determining the accrual date of the statute of limitations ( Vigilant Ins. Co. of Am. v Hous. Auth., supra). Perhaps the suspicions were unfounded or a conversion occurred at a later date or earlier. But evidence of the taking has not yet been presented.
Accordingly, the motion must be denied as the Respondent failed to submit any evidence, documentary or otherwise, to demonstrate precisely when the decedent's shares of stock in the Corporation were allegedly converted ( See, Swift v. New York Med. Coll , 25 AD3d 686 ).
In any event, the Court also finds that Respondent's motion to dismiss is premature. It is not uncommon in discovery proceedings for petitioners to amend a petition after the inquiry stage to set forth a cause of action based upon the information learned at the inquiry. Depending upon the allegations set forth in the amended petition, a SCPA § 2103 proceeding has been held to be in the nature of a replevin action, conversion action, fraud action, or constructive trust action ( See, Estate of Kraus, 208 AD2d 728), with different statute of limitations and accrual dates applicable thereto. On the other hand, discovery may reveal that one or more of a petitioner's causes of action is, in fact, time barred and should properly be withdrawn or dismissed pursuant to CPLR § 3212.
Discovery proceedings are rarely dismissed at the inquisitorial stage since the purpose of the proceeding at that point is to allow the fiduciary, who may have little or no knowledge of the decedent's affairs, broad latitude in obtaining information to assist in the recovery of estate property or to elicit information needed to administer the estate ( See, Matter of Laflin, 128 Misc 2d 348; Matter of Rosenkrantz, 5 Misc 2d 308). Discovery proceedings should not be dismissed without adequate opportunity for the full development of the facts ( See, In re Granowitz, 150 AD2d 446).
Consequently, the inquiry as requested in the Petition shall be held before the Surrogate's Court for the County of Queens on June 30, 2011 at 9:30 AM, and shall continue day-to-day until completed. There shall be no adjournment of said inquiry without prior Court order.
This is the Decision and Order of the Court
The Clerk of the Court is directed to mail a copy of this Decision and Order to the attorneys for all parties who have appeared in this proceeding.